Kansas City Fed Reported Contracting Activity for the Third Consecutive Month in May

By May 21, 2015Economy

The Kansas City Federal Reserve Bank said that manufacturing activity contracted for the third consecutive month in May. The composite index dropped from -7 in April to -13 in May, suggesting a sharper drop in activity than the month before. Indeed, several of the key data points declined at faster rates in May than in April. This included new orders (down from -12 to -19), production (down from -2 to -13), shipments (down from -7 to -9) and the average workweek (down from -10 to -14). At the same time, employment (up from -18 to -17) decreased sharply, and exports (up from -12 to -9) contracted for the fifth straight month, even as both measures fell at slightly slower paces for the month.

The sample comments suggest that challenges in the larger economy are weighing heavily on the minds of survey respondents. Indeed, manufacturers noted the low price of crude oil, the strong U.S. dollar, the “cost and complexity of government regulations” and the weakened outlook as challenges. In addition, another respondent cited the difficulty in finding qualified candidates to hire.

These headwinds have dampened the forward-looking outlook in the Kansas City district. The future-oriented composite index dropped from 6 to zero, its lowest level since July 2009. The underlying data reflect a decelerated expectation of new orders (down from 21 to 2), production (down from 17 to 6), shipments (down from 16 to 12) and capital spending (down from 10 to zero) over the next six months. Exports (up from -6 to -2) were anticipated to shrink once again, as was the average employee workweek (down from -5 to -13). On the positive side, at least one-quarter of those taking the survey still expect sales, production, shipments and hiring to increase over the coming months.

Chad Moutray is the chief economist, National Association of Manufacturers. 

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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